It’s already been a tough year for Indian farmers, with monsoon rains 27% below normal June 1 to Aug. 18, according to Reuters. In the cane growing north west things are even worse, here rains are 37% lower in the period that normally provides around three quarters of the nations rainfall for the entire year.

The government are playing down the seriousness of the situation in the run-up to the elections, despite an alarming increase in suicides in rural communities, in a country where up to 70% of the population are dependent on farm incomes. There’s no need to press the panic button yet, the government have re-assured the people, saying that they will release around 5.5 MMT of wheat and rice from state reserves to stem rapidly rising domestic food prices.

According to media reports, the government held 18.79 MMT of rice and 31.62 MMT of wheat in reserves as at the end of July. That might sound like a lot, but in a country with a population the size of India (circa 1.1 billion) it represents less than two and a half months worth of rice consumption and less than five months supply of wheat.

Last week the USDA cut it’s estimate of rice production this season by 15.5 MMT from it’s July prediction to 84 MMT, around 9 MMT lower than domestic consumption. There is no official word yet on wheat production estimates for 2010’s crop which will be harvested next March/April. With wheat demand forecast to rise, due to shortfalls in rice production, that 31.62 MMT is going to start disappearing very rapidly in a country that normally consumes around 6.5 MMT of wheat a month. Various media reports suggest that there is virtually no wheat left in private hands in India.

In recent days, numerous stories detail crop and livestock damage. Drought, floods, hail and freezes have bitten our foods, but whatever the cause, the result is the same — destroyed or damaged food supplies. These ultimately lead to higher store prices, shortages and in more extreme circumstances, rationing.

California and Texas – America’s two main food producing states – are experiencing severe, ongoing drought. California is suffering through a 4th straight year of horrendous water shortages, which has impacted every single crop it produces. See California’s Vital Role in Food Production for an eye-opener of what this states brings to your table.

Parts of Texas are experiencing the worst drought ever and fears are surfacing that it may be here to stay. Extreme drought is impacting everything that Texas produces. Marketing economist Dr. Mark Welch expects drought to cut Texas’ corn crops by 45%, sorghum by 69%, and wheat 62%. Cotton fields are so dry they’re being abandoned. These aren’t the only foods in trouble. Vegetables, horticulture plants, peaches and their world famous pecans have also taken severe hits. April freezes wiped out some Texas grapes leaving wineries in tough shape.

And don’t forget livestock… At least 40% of Texas’ cow herds live in exceptional or extreme drought areas. Little or no hay has been baled this year and cattle are suffering. Farmers have been forced to sell underweight animals because there’s no grass in the fields. In July it was deemed “critical” that Texas receive serious rain to maintain their animals. Now a month later, still no rain. This massive moisture blow has also affected goat, sheep and horse herds as well as honey production.

Wyoming’s herds have thinned by 300,000 head. The crulprit? A decade-long drought. Canada too, feels the harsh impact with farmers struggling through the worst drought in 50 years and forced to sell their herds. Ditto in Argentina except their animals are dying before they get to market. Cuba and Guatamala are also experiencing food worries.

We are a global community depending on other countries’ imports and exports. The US has many long-standing contracts promising to deliver millions of tons of grains and meats to other countries. Pakistan, India, Africaand China– all very large countries/continents – have trouble growing enough food in normal times. Due to drought, they are in terrible shape. These are countries that regularly buys US foodstuff. What happens when are own supplies are in jeopardy?

The world faces “mass starvation” following North America’s next major crop failure. And it could even happen before year’s end. So says Chicago-based Don Coxe, who is one of the world’s leading experts on agricultural commodities, so much so that Canada’s renowned BMO Financial Group named the fund after him.
…
…an imminent crop failure in North America will have particularly dire consequences for major overseas markets that are highly reliant on U.S. crop imports, Coxe cautions. Sadly, this scenario could have been avoided had successive North America’s governments not weakened the farming industry with too much political interference, he suggests.

“We’ve got a situation where there has been no incentive to allocate significant new capital to agriculture or to develop new technologies to dramatically expand crop output. We’ve got complacency,” he told BNW News Wire. “So for those reasons I believe the next food crisis – when it comes – will be a bigger shock than $150 oil.”
…
He notes that farmers, not just in North America, but the world over are still reeling from the global economic meltdown and have consequently curtailed their output. Thus, the inauspicious prospect of a drop in global food production this year – the first annual dip in living memory – means that farmers will not be able to keep pace with current grain demand.

“And when we have the first serious crop failure, which will happen, we will then have a full-blown food crisis, which we will not be able to get out of because we will still be struggling to catch up (as a result of diminished crop yields),” he says.

Furthermore, the prospect of a near-term global food crisis has been exacerbated by a surge in demand for high-quality protein (meat) in emerging super-economies such as China and India, Coxe says. This means that burgeoning global demand for crop staples is already beginning to outstrip supply.

“During this decade, the annual increase in hectares of global cultivated farmland has been roughly 1.5 per cent, at a time global demand for grains and soybeans has been growing at double that rate,” he says. “We will be dealing with mass starvation with the first serious crop failure. It could happen as early as this fall if for instance we have a killing freeze in Iowa in August.”

People who think that gold is a barbaric relic of ages past are wrong. Gold is real currency, real money. Central banks around the world seem to be quietly accumulating gold behind the scenes. China, India and Russia are buying gold. This is a fact. And why are they doing this? It is because they know the USD is close to collapse. They have to dispose of their hoard of USD before it becomes worthless.

Oil prices have rallied from a low of about US$30/barrel to US$74/barrel. This is despite the fact that the global economy has gone into depression. Demand clearly have slumped. So what is the reason for the more than doubling of oil price? It is because holders of USD are buying oil and disposing of their USD. Oil has become something like a proxy for fiat currency reserves. We find the situation repeated in the commodities market too.

I have been tracking the Russian central bank gold holdings since October of 2006 when they stood at 12.5 million ounces. Russia just reported their gold holdings as part of their Official reserve assets. See link below.

http://www.cbr.ru/eng/statistics/credit_statistics/print.asp?file=liquidity_e.htm
On the 20th of each month, Russia reports its gold holdings for the prior month. As of Aug 20, the Russian gold reserves now stand at 18.3 million ounces for July of 2009. This is an increase of 600,000 ounces of gold during the month of July 2009. Russia is now also showing their gold holdings for June 2009 on the link above.

The July 2009 increase of 600,000 ounces is the biggest one month increase in their gold holdings since I have kept records. The largest one month increase in gold holdings prior to today’s report was a 400,000 ounce increase in Oct. 2008, August 2008, and Sept. 2007.

Russia tends to increase their gold holdings every month. The only question is, how much they will increase their gold holdings this month? Russian purchases tend to be heavy in the August, September, October time period based on past history. If an average gold price is used of $930/oz for July, the 600,000 ounce purchase represents $558,000,000. Not exactly chump change.

It is going to get real expensive for the banks to keep the gold price under $1,000/oz.

The banking crisis will get alot worse despite all the happy talk that the economy is turning the corner. The FDIC is essentially bankrupt. The coming 2nd Quarter 2009 FDIC report will confirm what most of us already suspect: as many as 1000 banks may go belly up. Some even think 2000+ banks will go bust. Bill Sardi analyses the situation:

America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks. ….. We must wait and see how Americans respond to the upcoming FDIC report.
…..
There are roughly 8400 American banks that set aside a small portion of their profits to aggregately insure bank depositors should their local bank fail. A plethora of bank failures has depleted the FDIC reserve fund from $52.8 billion in 2008 to $13 billion in the 1st Quarter of 2009. (See chart above)

Alison Vekshin, writing for Bloomberg, indicates :
“The failure of 77 banks this year is draining the fund, prompting the agency in May to set an emergency fee of 5 cents for every $100 of assets, excluding Tier 1 capital, to raise $5.6 billion in the second quarter. The agency has authority to set fees in the third and fourth quarters, if needed, to prevent a decline in the fund from undermining public confidence.”

Vekshin goes on to report that 56 bank failures since March 31 have cost the FDIC an estimated $16 billion. (For comparison, in the 1st Quarter, bank failures only cost the FDIC $2.2 billion.) That $16 billion bank rescue would fully deplete the FDIC fund as it only had $13 billion at the close of the 1stQuarter. It’s possible the FDIC has already tapped into its line of credit at the Treasury Department without setting off alarm bells to the public.

The FDIC is required by law to maintain a reserve ratio, or balance divided by insured deposits, of 1.15 percent. It was at 0.27 percent as of March 31. It could be near zero at the current moment. (See chart at bottom of post)
…Hiding losses
Banks have been slow to foreclose, allowing mortgage holders a few months before their home is deemed in default and giving another 2 years before the property is foreclosed on its accounting books. This practice has been able to temporarily hide most of the banking collapse.

But banks must eventually write down their real estate home mortgage losses. First-quarter net charge-offs of $37.8 billion were slightly lower than the $38.5 billion the industry charged-off in the fourth quarter of 2008. As banks write off bad home loans, this downsizes their asset values. Downsizing at a few large banks caused $302-billion decline in industry assets in the 1stQ. The FDIC report says:

Total assets declined by $301.7 billion (2.2 percent) during the quarter, as a few large banks reduced their loan portfolios and trading accounts. This is the largest percentage decline in industry assets in a single quarter in the 25 years for which quarterly data are available. Eight large institutions accounted for the entire decline in industry assets; ……US banks are directing a great deal of their profits towards write-offs (loss provision..) for non-paying home mortgages (foreclosures). So the banks only have about $5–7 billion of profit to direct to the FDIC to shore up its quickly vanishing reserve account. This aggregate profit equates to about $890,000 profit per bank in a quarter. That is a pretty thin margin.
….Zombie banks
The FDIC, which claimed only about 300 problem banks in the 1st Quarter of 2009, but hid the fact there were about 2000 total lame banks among its 8400 members, This has given rise to the term “zombie banks,” which are defined as “a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support.”
….FDIC’s $13 billion against $220 billion liabilities
So just how much liability does the FDIC bear aggregately for its “problem banks?” At the end of the 1st Quarter in 2009 the FDIC said that figure was $220 billion. Remember now, the FDIC had only about $13 billion to over these institutions at the time. ….This figure will likely grow beyond imagination with the issuance of the FDIC 2ndQ report.
….How do American banks make profit today?
… the FDIC 1st Quarter report tells all – our so-called conservative American bankers, entrusted with your hard-earned savings, with no place to turn to generate traditional profits, have entered the gambling parlor. Here is how the FDIC said it:

Sharply higher trading revenues at large banks helped FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009.

Trading revenues means profit generated from trading stocks and other risky investments. Recall, when your money was being financed commercial and residential property it had some collateral behind it. An asset (real estate) was held in balance against the risk of failure to pay the loan. Now bankers are “investing” your money in the stock market in what appears to be a replay of how the Japanese propped up their stock market in recent years – by simply having major companies purchase each other’s shares to prop up value.
…Banks valued by goodwill and bailout funds
So there, you can see that in addition to goodwill, the bank’s capital was largely increased by bailout funds. So a dose of reality therapy will lead one to conclude that nearly all American banks are essentially insolvent.

If this leaves you feeling a bit queasy, well, you may need to reach for Dramamine when you realize the FDIC is not only broke, but it will probably announce it is tapping into its line of credit at the US Treasury Department, which is also insolvent (America is spending $1.58 trillion more than it collects in taxes this year).
…The mother of all bank runs?
Now if just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted. A short banking holiday would have to be declared and who knows what happens from there – troops in the streets, issuance of new currency, martial law? Don’t think those in the Federal government haven’t made plans for such an occurrence.